THE nation's biggest banks resisted raising interest rates above yesterday's move in the official cash rate, but warned that high funding costs were still pressuring mortgage rates.
Last night ANZ, Commonwealth Bank and Westpac-backed St George said they would each raise interest rates across their flagship variable mortgages by 25 basis points, matching the Reserve Bank's move.
Westpac and National Australia Bank are expected to detail rate rises today, with both likely to move in line with the central bank.
CBA, which has the biggest slice of the home-lending market, said it would increase its variable home loan rates by 25 basis points from Friday. This will take its standard variable home loan to 6.86 per cent.
ANZ's standard variable rate will increase to 6.91 per cent. Its small-business lending rates will also rise by 25 basis points. Both banks increased high-interest savings accounts by the same amount.
But ANZ's Australian operations chief, Phil Chronican, warned that high funding costs would become a "permanent part" of the world's financial landscape.
ANZ's latest decision on rates was a balance between "very real commercial pressures" and the bank's customers, as well as the community's interest in the economic recovery, he said.
Federal Treasurer Wayne Swan stepped up warnings to the banks not to increase mortgage rates by more than the RBA rise, saying there was "no justification" for raising rates by more than 25 basis points.
Recent profit updates by the big banks have revealed that interest margins the difference between a bank's cost of funding and lending have returned to levels before the onset of the global economic crisis.
The banks maintain that the increase in margins is largely due to them passing on higher interest rates to business customers. But the nation's lenders are likely to feel a funding squeeze on several fronts, which may eventually affect mortgage customers.
NAB and ANZ have recently noted that competition has started warming up in business lending, which is likely to limit their ability to push through further price increases.
Australian banks are also under pressure from regulators to increase the length of their funding books by taking on more long-term debt. While this would lower funding risks, long-term debt is more expensive than shorter-term wholesale funding.
In December, Westpac sparked a furore after it lifted interest rates by 45 basis points, nearly twice the central bank's rate rise. Westpac blamed higher funding costs, particularly long-term funding for moving above the overnight cash rate. NAB was the only big bank to cap its rate move at 25 basis points.
Surprisingly, Westpac's move has not yet slowed its lending growth. Its mortgage book grew by 1.2 per cent compared with the industry average of 0.7 per cent from January to December. This eclipsed CBA, which increased its loans by 0.7 per cent and ANZ at 0.6 per cent.
Despite pushing a lower pricing policy on mortgages, official figures show NAB is yet to have a surge in lending growth.
Frequently Asked Questions about this Article…
Which big banks matched the RBA's 25 basis point rise and how did they change variable mortgage rates?
ANZ, Commonwealth Bank (CBA) and Westpac-backed St George each raised flagship variable mortgage rates by 25 basis points to match the Reserve Bank move. CBA said its standard variable home loan would rise to 6.86% from Friday, while ANZ’s standard variable rate will increase to 6.91%.
Are banks also increasing savings rates when they lift mortgage rates?
Yes. The article says both CBA and ANZ increased their high‑interest savings accounts by the same 25 basis points when they lifted variable mortgage rates.
Why are banks warning that high funding costs are putting pressure on mortgage rates?
Bank executives — including ANZ’s Australian operations chief Phil Chronican — warned that higher funding costs are becoming a lasting feature of the financial landscape. Banks face more expensive long‑term debt (pushed by regulators) and other funding pressures that can squeeze margins and eventually flow through to mortgage pricing.
What did the federal treasurer say about banks passing on RBA rate rises to mortgage customers?
Federal Treasurer Wayne Swan warned banks not to increase mortgage rates by more than the RBA’s 25 basis point rise, saying there was “no justification” for hikes larger than the central bank’s move.
How have big bank interest margins changed and what does that mean for investors?
Recent profit updates show interest margins (the gap between funding costs and lending rates) have returned to levels seen before the global economic crisis. Banks say much of the margin increase reflects passing higher rates on to business customers, but ongoing funding pressures could eventually affect mortgage customers and bank profitability dynamics that everyday investors watch.
Why did Westpac raise rates by 45 basis points in December and did that slow its mortgage growth?
Westpac blamed higher funding costs — especially long‑term funding moving above the overnight cash rate — for its 45 basis point rise in December. Surprisingly, that larger increase did not slow lending growth: Westpac’s mortgage book grew 1.2% from January to December, ahead of the industry average of 0.7%.
How are competition and regulation affecting banks’ ability to raise loan prices?
NAB and ANZ noted competition is warming up in business lending, which limits their scope to push through further price rises. At the same time, regulators are pressuring banks to lengthen their funding books by taking on more long‑term debt — a move that reduces funding risk but increases funding costs because long‑term debt is generally more expensive than short‑term wholesale funding.
What should everyday investors watch regarding bank rate moves and mortgage pricing in the near term?
Keep an eye on RBA decisions (which banks often match), announcements from the big banks (CBA, ANZ, NAB, Westpac and St George) about variable and business rates, trends in funding costs and interest margins, regulatory shifts toward longer‑term funding, and whether competition in business lending eases or tightens — all factors the article identifies as drivers of future mortgage pricing and bank performance.
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